Overland Storage (NASDAQ:OVRL)
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Overland Storage Reports Fiscal 2005 Third Quarter Results
SAN DIEGO, May 2 /PRNewswire-FirstCall/ -- Overland Storage, Inc.
(NASDAQ:OVRL) today reported revenue and net income for its fiscal 2005 third
quarter and nine-month period ended March 31, 2005, consistent with preliminary
results announced on April 21, 2005.
Revenue for the fiscal 2005 third quarter was $58.3 million compared with $58.8
million for the same period last year. Net income for the fiscal 2005 third
quarter was $1.4 million, or $0.09 per diluted share, compared with $2.9
million, or $0.20 per diluted share, for the fiscal 2004 third quarter. Pro
forma net income for the third quarter of fiscal 2005, which excludes the
impact of outsourcing charges, was $2.0 million, or $0.14 per diluted share.
Pro forma results are presented to provide a more complete view of the
company's financial results in light of the costs associated with the
outsourcing of all manufacturing, as announced in September 2004. These
charges are expected to continue through the 2005 fiscal fourth quarter, when
the outsourcing transition will be complete. See "Non-GAAP Financial Measures"
below.
For the nine months of fiscal 2005, the company reported revenue of $180.3
million compared with $183.1 million for the same period last year. Net income
for the 2005 nine-month period was $5.9 million, or $0.41 per diluted share,
compared with $8.6 million, or $0.59 per diluted share, for the 2004 nine-month
period. Pro forma net income for the nine months of fiscal 2005, excluding the
impact of outsourcing charges, was $6.9 million, or $0.48 per diluted share.
The company indicated revenue for the third quarter was lower than expected due
to softness in both its branded and OEM sales channels. It noted that in
comparison to the prior year, there was a significant shift in business with
branded sales increasing 21 percent and OEM sales declining 11 percent. The
gross margin for the quarter was 25.5 percent compared to 27.5 percent in the
prior year. Excluding third quarter outsourcing costs of $1.1 million, which
are all charged to cost of goods sold, the pro forma gross margin was 27.4
percent. Operating expenses for the 2005 third quarter grew 16 percent over
the prior year quarter, reflecting a 40 percent increase in R&D spending.
Though the company's third quarter typically exhibits seasonal softness, there
was a noticeable industry-wide slowdown in I.T. spending, beyond anticipated
seasonality. "Results this quarter appear to reflect a soft patch in the
economy, as well as some indecision on the part of I.T. managers regarding the
deployment of disk in their backup paradigm," said Christopher Calisi,
president and chief executive officer of Overland Storage.
"One of the highlights of the quarter was the exceptional year-over-year
performance by our branded channel. The Americas recovered from a
disappointing second quarter, and despite third quarter seasonality, grew
revenue eight percent sequentially. Following a record performance in the
second quarter, EMEA was down sequentially, in part reflecting an especially
difficult German economy, but sales increased 25 percent over the third quarter
last year.
"We are pleased that our REO product line has taken a leadership position as
the disk-to-disk backup product of choice for many I.T. managers worldwide. In
January we announced the Multi-SitePAC(TM), a software module that adds remote
backup mirroring capabilities to REO, and is designed to protect and
consolidate remote site backups. We began shipping the new software PAC in
March. While REO sales for the third quarter were up sequentially over the
second quarter, they did not meet our expectations for the quarter due to the
general I.T. market conditions and the later than planned release of Multi-
SitePAC," Calisi added.
Fourth Quarter 2005
The company anticipates that the slowdown in I.T. spending will continue
through the remainder of calendar 2005 and will likely restrain sequential
growth in revenue for the fourth quarter of fiscal 2005. Gross margins for the
fourth quarter are difficult to predict due to uncertainty as to product mix,
channel mix and the timing of anticipated large REO orders and releases of REO
software. The company recently commenced development of its next generation
tape automation product family, expected to be completed in late fiscal 2006,
and is accelerating the development of REO software. As a consequence of these
initiatives, operating expenses are expected to grow approximately 10 percent
on a sequential basis in the fourth quarter of fiscal 2005. The company
believes that these investments will significantly strengthen its product
portfolio across multiple markets and contribute to improved long-term
financial performance.
Non-GAAP Financial Measures
To supplement the Consolidated Statement of Operations presented in accordance
with GAAP, the company has included a Pro Forma Consolidated Statement of
Operations that excludes the transition charges related to outsourcing all of
the company's manufacturing to Sanmina-SCI, a contract manufacturer. Overland
entered into a manufacturing service agreement with Sanmina-SCI on November 23,
2004 and plans to complete the transfer of all products to Sanmina-SCI by June
30, 2005. Over the second, third and fourth quarters of fiscal year 2005
Overland expects to incur a total of between $2.5 million and $3.0 million of
pretax charges related to the transition. These charges will be comprised of
termination benefits for approximately 135 employees, write downs for excess
facilities and other out-of-pocket expenses incurred in connection with the
transition. Total pretax transition charges of $538,000 ($350,000 net of tax)
and $1,093,000 ($652,000 net of tax), were recorded during the second and third
fiscal quarters, respectively, as additions to cost of goods sold. Because
these are one-time charges that will not be repeated in subsequent fiscal
years, the company believes the pro forma results provide useful information to
investors concerning Overland's operating results, and permit a more meaningful
comparison to historical financial results, which did not include such charges.
Reconciliations of GAAP net income to pro forma net income and GAAP to pro
forma per share results are provided in a table immediately following the Pro
Forma Consolidated Statements of Operations. Although management believes the
above non-GAAP financial measures enhance investors' understanding of the
company's business and performance, these non-GAAP financial measures are
inherently limited in that they exclude certain costs which are required to be
included in a GAAP presentation, and do not therefore present the full measure
of the company's recorded costs against its revenues. Accordingly, these pro
forma results should be considered together with GAAP results, rather than as
an alternative to GAAP basis financial measures.
About Overland Storage
Now in its 25th year, Overland Storage delivers world-class data protection
solutions designed to ensure business continuity. Focused on backup and
recovery, Overland's data protection solutions include the REO SERIES(TM) of
disk-based backup and recovery appliances and the award-winning NEO SERIES(TM)
of tape libraries. Overland sells its products worldwide through leading OEMs,
commercial distributors, storage integrators and value- added resellers. For
more information, visit Overland's Web site at http://www.overlandstorage.com/.
Except for the factual statements made herein, the information contained in
this news release consists of forward-looking statements that involve risks,
uncertainties and assumptions that are difficult to predict. Words and
expressions reflecting optimism and satisfaction with current prospects, as
well as words such as "believe," "intends," "expects," "plans," "anticipates"
and variations thereof, identify forward-looking statements, but their absence
does not mean that a statement is not forward looking. Such forward-looking
statements are not guarantees of performance and the company's actual results
could differ materially from those contained in such statements. Factors that
could cause or contribute to such differences include delays, unbudgeted
expenses, inefficiencies and production problems that may result from the
transition of manufacturing to Sanmina-SCI; difficulty of predicting sales to
the company's major OEM customer; worldwide information technology spending
levels; unexpected shortages of critical components; rescheduling or
cancellation of customer orders; loss of a major customer; the market
acceptance of the company's REO product line; delays in new product
introductions by the company, including the company's new software PACs and REO
operating system; the timing and market acceptance of new product introductions
by competitors; the timing and amount of licensing royalties; general
competition and price pressures in the marketplace; the company's ability to
control costs and expenses; and general economic conditions. Reference is also
made to other factors set forth in the company's filings with the Securities
and Exchange Commission, including the "Risk Factors," "Management's Discussion
and Analysis" and other sections of the company's Form 10-K for the most
recently completed fiscal year. These forward-looking statements speak only as
of the date of this release and the company undertakes no obligation to
publicly update any forward-looking statements to reflect new information,
events or circumstances after the date of this release.
Overland, Overland Storage, REO Series and NEO Series are trademarks of
Overland Storage, Inc.
Webcast: A live audio Webcast of Overland's management conference call
discussing third fiscal quarter 2005 results be held beginning at 10:30 a.m.
EDT, May 2, 2005, and will be posted at http://www.overlandstorage.com/.
Please provide adequate time to log on. Following the broadcast, the
conference call will be archived for future access on Overland's website.
OVERLAND STORAGE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
2005 2004 2005 2004
(Unaudited) (Unaudited)
Net revenues $58,282 $58,789 $180,333 $183,108
Cost of revenues 43,396 42,622 131,612 133,692
Gross profit 14,886 16,167 48,721 49,416
Operating expenses:
Sales and marketing 8,548 7,597 25,261 22,989
Research and development 2,324 1,659 7,718 5,442
General and administrative 3,062 2,808 8,582 8,359
Total expenses 13,934 12,064 41,561 36,790
Operating income 952 4,103 7,160 12,626
Interest income, net 417 159 1,050 368
Other income, net 20 63 107 64
Income before income taxes 1,389 4,325 8,317 13,058
Income taxes 32 1,449 2,457 4,505
Net income $1,357 $2,876 $5,860 $8,553
Earnings per share:
Basic $0.10 $0.21 $0.42 $0.64
Diluted $0.09 $0.20 $0.41 $0.59
Shares used in computing
earnings per share:
Basic 13,990 13,587 13,850 13,288
Diluted 14,609 14,551 14,444 14,400
OVERLAND STORAGE, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
2005 2004 2005 2004
(Unaudited) (Unaudited)
Net revenues $58,282 $58,789 $180,333 $183,108
Cost of revenues 42,303 42,622 129,981 133,692
Gross profit 15,979 16,167 50,352 49,416
Operating expenses:
Sales and marketing 8,548 7,597 25,261 22,989
Research and development 2,324 1,659 7,718 5,442
General and administrative 3,062 2,808 8,582 8,359
Total expenses 13,934 12,064 41,561 36,790
Operating income 2,045 4,103 8,791 12,626
Interest income, net 417 159 1,050 368
Other income, net 20 63 107 64
Income before income taxes 2,482 4,325 9,948 13,058
Income taxes 473 1,449 3,086 4,505
Net income $2,009 $2,876 $6,862 $8,553
Earnings per share:
Basic $0.14 $0.21 $0.50 $0.64
Diluted $0.14 $0.20 $0.48 $0.59
Shares used in computing
earnings per share:
Basic 13,990 13,587 13,850 13,288
Diluted 14,609 14,551 14,444 14,400
A reconciliation between net income
on a GAAP basis and pro
forma net income is as follows:
GAAP net income $1,357 $2,876 $5,860 $8,553
Outsource manufacturing transition
costs 1,093 -- 1,631 --
Income tax effect (441) -- (629) --
Pro forma net income $2,009 $2,876 $6,862 $8,553
A reconciliation between diluted
earnings per share on a GAAP
basis and pro forma diluted
earnings per share is as follows:
GAAP net income $0.09 $0.20 $0.41 $0.59
Outsource manufacturing transition
costs 0.08 -- 0.11 --
Income tax effect (0.03) -- (0.04) --
Pro forma net income $0.14 $0.20 $0.48 $0.59
OVERLAND STORAGE, INC.
SELECTED BALANCE SHEET INFORMATION
(In thousands)
March 31, June 30,
2005 2004
(unaudited)
ASSETS
Cash and equivalents $6,032 $12,397
Short term investments 71,583 57,260
Accounts receivable, net 38,587 33,794
Inventories 23,483 15,126
Other current assets 11,450 11,195
Total current assets 151,135 129,772
Property, plant and equipment, net 8,702 7,945
Other assets 6,984 7,514
Total assets $166,821 $145,231
LIABILITIES & EQUITY
Current liabilities $39,084 $26,451
Other long-term liabilities 4,902 5,266
Shareholders' equity 122,835 113,514
Total liabilities and equity $166,821 $145,231
DATASOURCE: Overland Storage, Inc.
CONTACT: Vernon A. LoForti, CFO, , or
Cynthia A. Bond, Director of Corporate Communications,
, both of Overland Storage, Inc., +1-858-571-5555
Web site: http://www.overlandstorage.com/